MN10669 lec 2
Double-entry booking system
The accounting entity concept – an artificial construct that defines the boundaries of the
organisational unit which is the object of focus of the particular accounting process and
determines those transactions to be recorded. It can be a legal entity such as a company,
club, uni, etc. However, it may be part of a legal entity or entities such as a sole trader or
partnership respectively. That is the part of a persons or people's activities which relate to
their business
Accounting equation and the statement of financial position = assets – liabilities = capital
the nature of assets, liabilities and capital
an asset is a tangible or intangible resource that is owned or controlled by an accounting
entity, and which is expected to generate future economic benefits (e.g. plant and
machinery, office equipment, inventories, trade receivables, cash) what the business owns
a liability is a legal obligation to transfer assets or provide services to another entity which
arises from some past transaction or event (e.g., loans, trade payables) what the business
owes
capital is the difference between an entity’s assets and liabilities = net worth of business
X – just saving time to reduce need to change the year but is equal to a number i.e. 2 making
it 2021
£10,000 is an asset and no liability therefore £10,000-0 = capital
Statement of financial position form ^
, On jan 2 he bought goods for resale costing £3,000 on credit
Assets = cash - £10,000
Inventory - £3,000
Liabilities = trade payables - £3,000
Capital = £10,000
SOFP
On jan 3 he sold the goods on credit for £4000
Assets = cash - £10,000
Trade receivables - £4000
Liabilities = trade payables - £3000
Capital = £11,000
Double-entry booking system
The accounting entity concept – an artificial construct that defines the boundaries of the
organisational unit which is the object of focus of the particular accounting process and
determines those transactions to be recorded. It can be a legal entity such as a company,
club, uni, etc. However, it may be part of a legal entity or entities such as a sole trader or
partnership respectively. That is the part of a persons or people's activities which relate to
their business
Accounting equation and the statement of financial position = assets – liabilities = capital
the nature of assets, liabilities and capital
an asset is a tangible or intangible resource that is owned or controlled by an accounting
entity, and which is expected to generate future economic benefits (e.g. plant and
machinery, office equipment, inventories, trade receivables, cash) what the business owns
a liability is a legal obligation to transfer assets or provide services to another entity which
arises from some past transaction or event (e.g., loans, trade payables) what the business
owes
capital is the difference between an entity’s assets and liabilities = net worth of business
X – just saving time to reduce need to change the year but is equal to a number i.e. 2 making
it 2021
£10,000 is an asset and no liability therefore £10,000-0 = capital
Statement of financial position form ^
, On jan 2 he bought goods for resale costing £3,000 on credit
Assets = cash - £10,000
Inventory - £3,000
Liabilities = trade payables - £3,000
Capital = £10,000
SOFP
On jan 3 he sold the goods on credit for £4000
Assets = cash - £10,000
Trade receivables - £4000
Liabilities = trade payables - £3000
Capital = £11,000
